How Will You Pay Your Tax Debt? Step Two: Understanding Financial Standards Before Calling the IRS

By Suzanne Weathers, EA | Weathers & Associates Consulting

Solving Tax Problems

Example IRS CP14 Notice – when there’s a balance due on a filed return.

When someone receives a notice from the Internal Revenue Service (IRS) or any state taxing agency about back taxes owed, it’s common to panic. Then think “I can’t afford to pay this.”

While I am a federally licensed Enrolled Agent and part of a team that works with taxpayers every day, it's important to clarify that although the IRS typically does not expect individuals to drain their life savings or sell their home, there are cases—particularly in larger or more complex matters—where they have required the liquidation of retirement accounts or even forced the sale of property. These outcomes are not the norm, but they do happen, which is why early planning and financial review are so critical. In fact, the IRS has very specific rules about how much you’re allowed to keep for monthly living expenses—and in most cases, it’s more reasonable than people fear.

That’s why the smartest move you can make is to understand your own cash flow before you ever speak with the IRS or any state tax agency. This second step in our blog series introduces the financial ground rules the IRS uses—and helps you begin thinking through how your income and expenses stack up before discussing payment options.

IRS Financial Standards: Why They Matter

The IRS doesn’t just ask you what you can pay. They calculate what you should be able to pay based on national and local “Collection Financial Standards.” These standards define how much you’re allowed to claim for essentials like:

• Food, clothing, and personal care

• Housing and utilities (vary by location)

• Vehicle ownership and operating costs

• Out-of-pocket medical expenses

You can explore the most current standards directly on the IRS website:IRS Collection Financial Standards →

When we build a financial disclosure to the IRS—whether for a payment plan or offer in compromise—these are the benchmarks we must use. If your actual spending is above the IRS limit in a particular category, they may not allow it unless you can prove it's necessary and reasonable in you personal circumstance.

This is why taking time to understand where your household or business stands financially is so important—and why it's just one part of the broader 12-step process we’ve developed to guide taxpayers through resolving their tax problems with clarity and confidence before you engage with a tax agency. And if you do not qualify for Currently Not Collectible status, experienced professionals can often help you identify ways to maximize allowable expenses within IRS guidelines—something most taxpayers aren’t aware of. This isn’t just about qualifying in the short term; it’s about ensuring the long-term viability of any repayment agreement you may enter into.

If your income is at or below the amount required to meet expenses at the IRS’s allowable living expenses, and there’s truly no money left to pay toward your tax debt after covering the basics, you may qualify for a special status called Currently Not Collectible (CNC). This status doesn’t erase your debt, but it temporarily pauses all collection activity—including levies and garnishments—because the IRS agrees that you can’t pay right now without causing financial hardship.

However, the IRS will still file a federal tax lien—this is standard procedure not just under CNC—and when that happens, your lien becomes public. This often results in a wave of contact from high-pressure tax debt resolution companies. They may make bold promises to eliminate your debt quickly or urge you to act fast, but their services are often expensive and may not be appropriate for your situation.

Don’t panic. Don’t sign anything. And don’t pay thousands for something you may not need. Take the time to understand your rights, assess your financial situation, and seek qualified guidance from trusted professionals.

What Comes Next

In our next post, we’ll discuss how to build your own budget, and how this process can help determine your eligibility for different IRS repayment or relief options.

If you’re not sure where to start or feel stuck trying to make the numbers work, you don’t have to do it alone. At Weathers & Associates, we help taxpayers like you understand their options and move forward with confidence.

📞 Schedule your consultation today at (509) 994-8904 or contact us at weathersassociates.com